Early Retiree Program Bankrupt

A $5 billion federal program to pay for the health benefits of early retirees is proving to be more popular than expected. So popular that it's running out of money earlier than planned. The fund, part of the health care overhaul, was to provide a bridge of insurance coverage until 2014 when early retirees would have many more options under the health care law.

This report is part of a collaboration between Minnesota Public Radio, NPR, and Kaiser Health News.

A $5 billion federal program to pay for the health benefits of early retirees is proving to be more popular than expected. So popular that it's running out of money earlier than planned. From Minnesota Public Radio, Elizabeth Stawicki reports.

ELIZABETH STAWICKI, BYLINE: People who retire between the ages of 55 and 65 are sometimes fortunate enough to have health insurance through their former employer. If they didn't have this coverage, they might have a hard time finding affordable health insurance because of their age or chronic conditions. So the federal health care law created a program to give employers an incentive to keep providing coverage and to prevent people from becoming uninsured.

Laurie Bauer of the Minnesota-based Andersen Corporation says the company has received about $2 million under the program.

LAURIE BAUER: Medical benefits have increased dramatically, as we all have seen. And we want to be able to keep those affordable for our retirees. And any opportunity that we have to reduce those premiums to them is very attractive to us.

STAWICKI: She says the window and door manufacturer would've continued providing early retiree benefits anyway. But the extra money means the company can keep a lid on rising premiums, at least through 2012. Instead of an 8 percent increase, retirees will only pay a 2 percent increase.

The program has been popular with all kinds of employers. Thousands have participated. For example, Citigroup has received $8 million, Ernst and Young 3 million, the state of New York 88 million.

PAUL FRONSTIN: It was a popular program, which is why the money is running out as quick as it is.

STAWICKI: Economist Paul Fronstin of the Employee Benefits Research Institute says it's uncertain whether the program accomplished what it set out to do.

FRONSTIN: In terms of keeping employers from dropping retiree health benefits, it's unclear if it made any dent there whatsoever.

STAWICKI: Congress appropriated $5 billion for the early retiree program. The original concept was to provide a bridge of insurance coverage until 2014, when early retirees will have many more options under the health care law. But even in the first year of the program, HHS forecast more requests for money than would be available.

In the past week, the government issued a new report saying the fund has already paid out $4.5 billion. And it's not just corporations who have gotten the money. State and local communities have received money as well. In fact, about half of all recipients have been state and local governments.

PAT HENTGES: It's worked out well for us.

STAWICKI: Pat Hentges is city manager of Mankato, Minnesota, population about 40,000. He says the program reimbursed his city about $300,000 this year, which largely offset rising health premiums for its early retirees. He says if the program goes away, it'll hurt.

HENTGES: I suspect what's going to happen is that we will go back to probably double-digit cost for our health insurance plan.

STAWICKI: And Hentges says local taxpayers will likely shoulder the increases. HHS officials say they will stop accepting claims under the program December 31.

For NPR News, I'm Elizabeth Stawicki.

MONTAGNE: That report was part of a collaboration of Minnesota Public Radio, NPR, and Kaiser Health News. Transcript provided by NPR, Copyright NPR.